Foreign and local investment banks set up dedicated teams to cater e-commerce firms

A $300-billion market value in five years might appear overtly optimistic to some, but it would still be about 10% of India's estimated $3-trillion stock market capitalization.Reena Zachariah&Baiju Kalesh | ET Bureau | May 13, 2015, 09:28 IST

Banks are showing less interest in lending to units operating in manufacturing and services sectors stunting the growth plans of MSMEs in the region.Foreign and local investment banks are setting up dedicated teams to cater to the growing needs of the buzzing e-commerce companies.

In the recent times, London-based bank Investec, Kotak Mahindra Capital, Axis Capital, Edelweiss Financial Services, Motilal Oswal Financial Services and Equirus Capital have started focusing on the e-commerce business.While some of these banks have hired people to head the digital media vertical,others are adding more people to this team.

Investment banks such as Avendus,a leading advisor for digital companies,which has worked with most of the leading consumer internet brands including Bookmyshow, Quikr, redBus, Housing, Taxiforsure and Freecharge has a 16 person team and is in the process of hiring more people.

Industry experts said, India's Internet businesses are on road to build a $300-billion market value by the end of this decade.

“Our Internet story is experiencing rapid growth aided by unprecedented global investor interest in what can safely be called the most buoyant part of the Indian economy. A $300-billion market value in five years might appear overtly optimistic to some, but it would still be about 10% of India's estimated $3-trillion stock market capitalization by the year 2020,” said Aashish Bhinde, Executive Director, Head- Digital & Technology, Avendus Capital.

“India will see many internet companies going public like China, which currently has 27 listed on US bourses and four on the Hong Kong exchange. With so much achieved and so much untapped potential still existing, it is but natural that firms will set up dedicated teams for these businesses,” Bhinde said.

He added that in 2011 when Avendus started this vertical there was minimal awareness of the digital space in India and zero research.

“Our team met most of the companies, researched growth in China and other developing markets, and subsequently published the India Goes Digital report in November that year.This was probably the first attempt to map this industry in India,” he said. Avendus has advised 17 Internet investment deals and M&A's in the FY14-15 and has a 25% market share in this vertical.

E-commerce and affiliated sectors (logistics, payments, digital marketing etc) have seen unparalleled interest in the past 12 to 18 months, attracting entrepreneurs, customers and investors. I-bankers said the e-commerce ecosystem is a billion dollar opportunity and there is a tremendous opportunity to investment banks and boutique advisory firms to assist and service India's digital ecosystem.

“Investec is a global specialist bank with a strong focus on digital media. We bring global reach and expertise as well as a local presence with a full subsidiary and corporate financiers situated in Mumbai. In the last year or two we have set up a dedicated team focused on the Indian digital sphere and have advised Quikr, Pepperfry, Bigbasket amongst others on their fund raising and advised Interactive Avenues, India's largest digital advertising agency, on their sale to IPG,” said Devin Kohli,Digital Media and Technology Head, Asian Corporate Advisory, Investec.

While fund raising through private pools of capital have so far dominated the e-commerce space,bankers feel some of the start-up companies may look at listing in local stock markets even as Sebi is planning to ease listing norms for them.

“We have started engaging a lot more with e-commerce companies as we believe they will require late stage funding,” said Vikas Khemani, president & co-head, wholesale capital markets, Edelweiss.The firm has increased the headcount of its technology team to eight from three last year. Every month, the firm receives about eight to 10 proposals from e-commerce companies seeking their advise on fund raising and M&A.

Local investment bank Axis Capital, owned by India’s third largest private bank by assets, has also allocated more resources to build the digital & technology team though it believes such firms are attractive to venture and private equity funds.”We are engaging with these companies to help them raise money from the public markets and strategic investors as and when they are ready,” said Dharmesh Mehta, managing director and chief executive, Axis Capital

Banks are also spending time and effort in training talent “Since this industry itself is very young, one has to spend considerable time and effort in training talent. There is no ready made pool of Investment bankers for this sector in India,” Bhinde of Avendus said.